I provide sound counsel and achieve outstanding results for clients in criminal and civil tax litigation and asset forfeiture litigation throughout the United States. I also perform estate planning for Michigan residents. My firm, Dunn Counsel PLC, is based in Troy, Michigan. I earned my B.S.B.A. cum laude from Aquinas College in 1978, my J.D. from Notre Dame Law School in 1985, and my LL.M. (Taxation) from Washington University in St. Louis in 1991. Before law school I was a Senior Accountant on the Audit Staff of Ernst & Young. This blog examines current issues arising in my law practice.

10/13/2012 @ 10:23PM3,155 views

Tax Resolution Schemes Persist

In the throes of our country’s worst economic time since the Great Depression, “tax resolution” firms advertised heavily on television, promising relief which they could not deliver. Desperate taxpayers facing tax collection action responded to the ads. These firms use high-pressure sales techniques to exact substantial retainers—typically $5,000-$10,000. The retainer paid, the “resolution” firm disappears. The taxpayer is out his or her money, without relief. The government’s taxes go unpaid.

These unconscionable firms are unregulated. Many of them are accountants by trade. Certified public accountants, or CPAs as they are called, are trained to audit companies’ financial and report on them for the benefit of shareholders. I know. I was a CPA earlier in my career. CPAs who specialize in taxation tend to be adept at preparation of income tax returns. But CPAs are not trained in law or advocacy. If a case does not resolve administratively, a non-lawyer CPA is unable to take it to the next level—litigation. Petitioning the U.S. Tax Court, or the knowledge by IRS counsel that the taxpayer’s representative is capable of litigating the case, is important in resolving a tax case. Pursuant to IRS practice, once a case is docketed in U.S. Tax Court, it is sent back to IRS Appeals for another attempt at administrative resolution. IRS Counsel have ultimate settlement authority over a docketed case—they tend to be the most reasonable of all IRS representatives.

A $195 million judgment was entered against Patrick Cox and his firm, Tax Masters. The firm ceased operations, and declared bankruptcy. The largest creditors included $2.6 million owed to CNN for advertising and $2.3 million owing to a Philadelphia law firm. What a shame.

JK Harris, which at its peak had several hundred offices throughout the country, has now ceased operations under crushing civil and administrative litigation.

But tax resolution schemes persist, albeit on a smaller, local or regional scale. I have long known that these operators hire “bird dogs” to search local register of deeds’ officers for Notices of Federal Tax Lien (“NFTL”), and then bombard the subjects of the notices with come-ons for tax relief. I have recently experienced the onslaught first-hand. A client owing a substantial balance to the IRS retired to a foreign country. As the client does not have a U.S. address, the IRS sends mail to him at my office address. When the IRS recorded an NFTL against the client, the barrage of mail from tax relief operators began. The ads were quite startling. Some made a deliberate effort to appear that they were coming from the Internal Revenue Service. Some came from people falsely claiming to be lawyers. All of them made outlandish, unfounded claims/promises of tax relief.

The IRS could end such “bird-dogging” by discontinuing the practice of disclosing taxpayers’ addresses on NFTLs. Congress could also legislate against such misuse of recorded NFTLs—NFTLs are recorded to put prospective creditors on notice of the IRS’ priority in a taxpayer’s assets.

“Buyer beware” prevails in the marketplace. Tax resolution schemes are a waste of money. If you have a tax problem, you are best represented by a competent tax attorney, who is accountable to the organized bar, and to you.

After I posted this piece, the IRS apparently posted an updated NFTL against my client described in the piece. This triggered another onslaught of solicitations from tax resolution schemes. I have attached several of them for your perusal.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

Excellent article, Mr. Dunn. As a former IRS Revenue Officer and I am all too familiar with these tax resolution schemes.

I would strongly encourage all taxpayers to thoroughly research any company or individual they are considering to engage for tax representation by visiting complaintsboard.com, ripoffreport.com, and/or Google. A quick search should reveal unscrupulous companies like the ones mentioned in the article.

The IRS allows only 3 types of licensed individuals to represent taxpayers: Attorneys, CPAs, Enrolled Agents. Taxpayers will be well served by verifying that the person handling their tax matter fits one of these credentials.

Thanks for your comment, Mr. Raanan. I have nothing but good things to say about Revenue Officers and Enrolled Agents. A couple of years ago I wrote an article entitled “The Perilous Joint Tax Return” for the EA Journal.

As mentioned in my post above, the IRS should stop disclosing taxpayers’ addresses in NFTLs (they have already stopped disclosing all but the last four digits of taxpayers’ Social Security numbers), and Congress should legislate against misuse of recorded NFTLs.

While the companies you point out were definitely some bad apples, and at least two dozen such firms continue to operate in the unconscionable manner in which you describe, I have to take issue with you lumping ALL tax resolution practitioners together like this in one fell swoop.

I am an Enrolled Agent myself, and specialize solely in IRS collections representation. The services that I, and thousands of my colleagues, provide to individuals and small businesses in this country are quite invaluable, in my not so humble opinion. Most folks are lost simply when it comes to preparing their tax return, let alone wading through the jungle of collections and appeals.

In reality, competent and ethical collections representation practitioners are actually boosting IRS collections rates. We get taxpayers back into voluntary compliance, strengthening the overall tax system in this country. And yes, I believe that the services I provide are of high value to my clients, and I expect to be compensated commensurate with that value. In order to get clients, all businesses must do marketing, and tax resolution practitioners are no different.

We must obviously operate ethically and within the law, and the fact of the matter is that most practitioners do. There are over 40,000 Enrolled Agents, over 25,000 actively licensed tax attorneys, and over 200,000 CPA’s with active PTINs. While a few hundred of these individuals choose to own or work at firms utilizing illegal or deplorable sales and marketing practices, the simple fact is that most of us that specialize in collections representation are honest, ethical practitioners, charging reasonable fees, and using perfectly acceptable low pressure sales and marketing methods.

Bottom line, the vast majority of “tax resolution” practitioners are NOT employing “schemes”, and I take professional offense to your blanket insinuation that an entire subset of the tax and accounting profession is doing so and outright defrauding clients.

Although I respect reporting about what is going on regarding scamming of clients, there are some good, “local” firms who are here to assist taxpayers in their situations. It is best for troubled taxpayers to contact and only work with local / regional firms who you can reach and talk to with as little effort as is possible. Not a sales oriented conversation, but from a counseling point of view first.

Our company has a first name that is similar to a company out of Irvine, so we sometimes get angry phone calls about their situations. I call them back to tell them that it is not us, but if you wish any help we are here.

I have seen this industry evolve over the years, unfortunately, like all opportunists to an industry that only cares about money and not the client’s well being. It is unfortunate and I am not sure when this will change anytime soon in our industry. It really upsets me.

I’m really glad to have a post like this…..at first i got ma self so much interested browsing one ..named Platinum tax defenders , and then day by day um really getting interested watching this sectors activities :D….but it’s real that a large clients are facing to these resolution services having hope of decreasing their tax probs :D…..i think people should be concern lot ….we should not think about this resolution services orgs. we just need to be concern about the awareness of people…..if they are really afraid of their tax paying so i think they have the lack of having the patriotism :D….because Govt. putting tax to them who are able to pay that :D. thanks forbes for sharing post like this.thanks

Thanks for your comment, M4sud. You really have to be careful in purchasing services in this area. If you are unable to resolve the tax collection problem yourself, then you should use a professional in your locale to whom you have been referred. Best wishes.

Thank you for your comment, Mr. Hane. I agree that the vast majority of Federal tax controversies can be successfully resolved in the IRS Appeals Office. I docket a case in Tax Court only in the unusual circumstance that I am unable to resolve it in the Appeals Office, and wish to bring wish to bring it before IRS counsel. I also agree that the EAs do a lot of good for taxpayers. Best wishes.